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Collaborative Success Stories: Risky Business

Older man attempts to understand computer screen.

University of Missouri researcher Michael Guillemette has provided new insight into how age-related cognitive decline can affect financial investing decisions.

Baby boomers—Americans born from 1946-1964—represent nearly one quarter of the U.S. population. On average, boomers have insufficient retirement assets, raising concerns about how this generation will support themselves as they age.

Using data from the Health and Retirement Study, which measured cognitive function, Guillemette and collaborators from Texas Tech University presented participants with two hypothetical nancial prospects. Both had equivalent risks and expected returns, but one situation included an upfront cost and the other had no upfront cost. Results showed that individuals with lower cognitive ability, when confronted with an upfront cost, were less willing to take a subsequent risk.

The findings may help explain the low demand for annuity products among older Americans, who are vulnerable to cognitive decline. Guillemette suggests these individuals could be helped by a Certified Financial Planner: “He or she could recognize those cognitive shortfalls and work in the individual’s best interest in terms of proper financial decisions,” he says.

The study was published in Applied Economics Letters.

Dr. Michael Guillemette is an assistant professor of personal financial planning in the University of Missouri’s College of Human Environmental Sciences.

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Related Initiative(s):
One Health/One Medicine